Fubon Financial

Establish a flexible asset allocation strategy to enhance cash flow resilience

In the first half of 2025, the international political and economic landscape is highly variable, accompanied by significant fluctuations in the financial markets. Numerous factors are influencing the trajectory of the global economy in the latter half of the year. Dr. Wei Lo, Chief Economist of Fubon Financial Holdings, stated during the mid-year session of the 2025 Fubon Financial Trends Forum held today (1st) that we are currently experiencing a 'calm before the storm.' The implementation of the reciprocal tariff policy by U.S. President Trump has been postponed until July 8, and the final outcome remains uncertain. The third quarter will be a critical observation period to determine whether the global political and economic situation can ease. It is recommended that businesses and investors enhance their cash flow defenses and closely monitor the interplay between trade policies and central bank actions.

The mid-year session of the ‘2025 Fubon Financial Trends Forum’ will take place on July 2 at 12:00 PM, streamed live on the official 'Fubon' LINE account and Facebook fan page. A team of experts from Fubon Financial Holdings, Taipei Fubon Bank, Fubon Investment Consulting, Fubon Securities, and Fubon Asset Management will gather to discuss the economic outlook for the second half of the year and the most popular ESG investment trends. Attendees will have the opportunity to interact with the speakers during the Q&A session, and we invite all interested investors to join us.

The trade war, the One Big Beautiful Bill Act, and the surge in debt are causing a reevaluation of US dollar-based assets

Dr. Wei Lo stated that due to the timeline and effects of Trump's policies surpassing market expectations, the United States is facing renewed risks of stagflation, leading to the disintegration of American exceptionalism. The advent of DeepSeek has revolutionized the investment approach towards AI, steering the reallocation of market capital. Trump's economic and political transformations have encouraged European countries to strengthen their independence, hastening the anticipated revival of Europe; concurrently, this has sparked doubts about the sustainability of U.S. debt, causing a global capital migration. The potential shift in investor sentiment is also a key aspect to monitor closely in the second half of this year.

Due to various influencing factors, the global financial markets experienced significant turbulence in the first half of 2025, with a noticeable increase in the volatility of the MSCI global index. Among these factors, the Trump administration once again adopted aggressive trade policies, raising the reciprocal tariffs on China to 125% and initiating multiple investigations under “Section 232”, which extended to critical sectors such as steel, aluminum, automobiles, pharmaceuticals, and semiconductors, thereby escalating global trade tensions. Although in May, both the United States and China issued a 'Joint Statement on China-U.S. Economic and Trade Meeting in Geneva', agreeing to suspend retaliatory measures and resume negotiations, the market remains generally concerned about the continuity and predictability of these policies.

In the realm of fiscal policy, the debt and interest expenditures of the U.S. government are on a continuous rise. By 2024, the federal debt of the United States is expected to reach US$36.2 trillion, with annual interest payments totaling US$1.1 trillion, which contributes to the White House's rationale for imposing tariffs. The projected tariff revenue for the United States in 2024 is US$78.92 billion, with US$60.61 billion collected in the first five months of this year, more than 70% of which is attributed to tariffs on China. Dr. Wei Lo suggests that although U.S. fiscal revenues seem to be increasing in the short term, they actually mask underlying structural deficit pressures. Should interest rates remain elevated or market confidence decline, US dollar-based assets may undergo valuation adjustments.

The Federal Reserve continues to observe the situation, while there are discrepancies in the monetary policies and exchange rate trends among G10 central banks

On June 18, the Federal Reserve decided to maintain the target range for the federal funds rate at 4.25% to 4.50%, marking the fourth consecutive meeting without a rate cut. The statement noted that uncertainty regarding tariffs peaked in April but has since decreased, although it remains elevated. It is anticipated that this uncertainty will gradually affect consumer spending in the coming months, underscoring that a wait-and-see approach is the most prudent course of action. Dr. Wei Lo's analysis indicates that the Fed's cautious stance highlights the current risks associated with its dual mandate of managing unemployment and inflation. The median projections in the dot plot suggest there is still a potential for a 0.5% rate cut by the end of the year; however, the committee's positions are leaning more hawkish, with the median forecast for the policy rate at the end of 2026 and 2027 rising by 0.25% compared to the March predictions, implying that the current rate cut cycle has narrowed from 2.25% to 2%.

On the other hand, even though the G10 central banks have cut interest rates more than the Fed, the dollar has shown relative weakness due to global capital shifts. The central banks of the US, Europe, and Japan are maintaining their balance sheet reduction policies, and as the investment climate in the market changes, long-term bond yields are rising, resulting in increased volatility in the bond market.

The key events of the third quarter include the war between Israel and Iran, tariff negotiations, the One Big Beautiful Bill Act, and the annual meeting of global central banks

Dr. Wei Lo emphasizes that the uncertainty surrounding economic and trade policies, coupled with escalating trade conflicts, is undermining corporate valuations and investment confidence. The third quarter will serve as a critical observation period to assess whether the global political and economic situation can stabilize. Key events to monitor include: (1) the subsequent developments in the conflict between Israel and Iran; (2) trade negotiations between the United States and various governments, with July 8 marking the deadline for an additional grace period on reciprocal tariffs, making progress in U.S.-China and U.S.-Europe negotiations particularly significant; (3) the impending passage of the One Big Beautiful Bill Act by the United States Senate and House of Representatives, which will address issues such as raising the U.S. debt ceiling and expanding the government fiscal deficit; (4) the global central bank meeting in Jackson Hole in late August and the major central bank interest rate decision meetings in September.

Looking ahead to the second half of 2025 in the financial market, Dr. Wei Lo summarizes:

•Stock Market: Global corporate valuations and profit growth are under dual pressure from tariffs and weak demand. If the Federal Reserve can lower interest rates sooner, it is expected to send a positive signal, which would boost European and emerging stock markets.

•Bond Market: The trend of US bond interest rates is constrained by debt supply and investor confidence. If the attractiveness of US dollar-based assets diminishes, long-term yields may experience upward pressure, and credit spread may also widen.

•Exchange Market: The US Dollar Index is facing correction pressure due to policy and credit concerns. The Japanese Yen may appreciate as arbitrage trading withdraws, affecting fluctuations in emerging market currencies.

•Raw material market: Geopolitical uncertainties continue to rise, and there remains potential for upward movement in energy and precious metal prices, particularly gold, which may become the preferred choice for hedging funds.

Moreover, Dr. Wei Lo points out that in the latter part of 2025, it will be important to carefully observe occurrences such as the Iran nuclear issue, the negotiations involving Russia and Ukraine, and the military tensions present in the Asia-Pacific region, as these will shape global risk sentiment and influence capital flows.